Posted
by
kdawsonon Monday December 11, 2006 @05:10PM
from the ho-ho-ho-chi-minh dept.

PreacherTom writes "One of the most controversial aspects of the global economy has been the newfound enthusiasm of companies, freed from the constraints of physical location, to outsource jobs. No country had embraced tech outsourcing with more passion than India. Of late, problems are beginning to arise in Indian outsourcing: engineers will start a project, get a few months' experience, and then bolt for greener pastures. The level of attrition can cause the turnover of a project's entire staff within the course of a year. Combine this with salaries in Bangalore that are rising at 12% to 14% per year and it is no surprise that companies are looking beyond India to a slew of emerging hotspots for IT, such as Brazil, China, and Vietnam. Will Ho Chi Minh City be the new Bangalore?" From the article: "India remains an IT outsourcing powerhouse, with $17.7 billion in software and IT services exports in 2005, compared with $3.6 billion for China and $1 billion for Russia... India's outsourcing industry is still growing at a faster pace than that of... other wannabe Bangalores... By the third year of an outsourcing deal, after all the costs have been squeezed out, companies get antsy to find a new locale with an even lower overhead."

As foreign workers acquire more and more skills, the gap between them and the first-worlders being replaced diminshes. Already we are seeing this: instead of outsourcing to places like India or China, many companies are turning to not-so-poor but cheap places like Easter Europe, Brazil, or Argentina. Countries where technically skilled people exist but were in low demand, but most importantly where the culture is extremely compatible with their clients'.

(Brazilians or Argentines DO have a language barrier, but their culture is much more similar to that of the US than other people in the globe, which makes their skill acquisition faster).

The problem clients have with outsourcing isn't about foreigners or incompetence. It's about managing a herd of cats through virtual teams and bonding with people with the same accent and interests as yours. I know that personally I've had much more success with my customers due to my American accent than my less linguistically skilled co-workers.

I'm in China at the moment, actually, about to go to a second site here. My purpose? I'm looking at the security of two vendors who are competing for a financial BPO (Business Process Outsourcing) contract with a major corporation. This is my first look at outsourcing up close, and I can see why companies examine the option. Yesterday I looked at a BS 17799 and SAS 70-certified facility, with smart people who cost far less than their counterparts. Also, there was discussion about turnover in India.

Outsourcing is definitely here to stay, but from what I have seen, cost is not the only factor that gets considered these days. (At least, not by the client I'm working for.) They're looking at the whole package, but the biggest thing that has mattered so far are the tools and functionality that the outsourcing provider can bring to bear. At the end of the day, it'll be functionality that matters the most, especially as labor costs in markets like India and China grow. But don't make the mistake of thinking that in such countries lower cost is all they have to offer, because that's not necessarily the case; the provider I visited yesterday had a hell of a great system for handling the complex financial functions that are a main pain point for my client.

just a nod to this insightful look at the Economics of Offshore Outsourcing [led-digest.com] I found recently via Reddit or somewhere. Bottom line for me is that there are levels of quality in all things, and this is no exception. Do your due diligence and expect to pay more for quality work. Just like anything else outsourcing work is demanding more moo-lah.

bonus in the article cited above - a discussion on coding and the communications barrier. And i quote:

I spent a year in China teaching C++ to college students. Although C++ is a fairly straight forward programming language if you are fluent in English, it becomes ridiculous to the Chinese due to the language / culture barriers. Out of 35 students only 7 actually passed the course and the headmaster told me that this was a wonderful record as usually in a class of 35 only one or two will get a passing grade.

This "problem" was always part of doing business with Indian subcontractors. The first time I encountered an Indian team was on a project around 1997 - back when it was just called subcontracting, and not 'out-sourcing'. We had a major problem of trying to get the guys up to speed, since they were just fresh out of university, and very green - and just when you got them trained to a useful stage, they would be gone. None of the coders would be on the project for more than 3 months before they left (left the company, or got promoted, I have no idea), and everyone had different styles and skills - and none were too great. I found out years later - when working with other Indian developers hired by the company I was in at the time, that the company these others were part of - Tata Infotech, is basically a graduate-eating meat shop with an extremely high turnover even for India. Of course with so much competition for workers, the same happens in all Indian I.T. shops, not just Tata.

Needless to say, for the original project we threw away all of the rubbish they'd coded and two of us wrote a working version in about 6 months - it was only a small bit of code really, but before that time we'd wasted 18 months 'reviewing' mostly crap code, and training their graduates for them in the process.

There's will come a time when the supply of IT workers will match or exceed the demand.

Take an econ class. You don't even know how to use the terminology right.

I did a minor in Economics at university (major in CS. I'm a developer too), with pretty good marks, particularly in the introductory courses, where econo-jargon is defined. I don't see anything wrong with his statement.

You can have an available supply of IT workers exceeding the demand for IT workers. And, of course, when this happens, the price -- the wage rate -- of IT workers falls; too many workers chase too few jobs.

Now, in practice the wage rate of employed workers doesn't fall (usually, though the end of the dotcom boom was an exception) - their pay is generally regular. But unemployment for that worker group rises, so the *mean* wage rate of *all* workers - the unemployed plus the employed - decreases.

the US has run a TRADE DEFICIT with the rest of the world for 30 YEARS!

There is no such thing as a trade deficit between countries; any more than there is a trade deficit between you and your local supermarket. They never buy anything from you, and yet you keep buying stuff from them. It's *exactly* the same situation between US and India.